SAT Issues Export Tax Refund Inspection Procedures

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Sept. 21 – The Chinese State Administration of Taxation issued an announcement on August 30, outlining the processes by which enterprises may be subject to refund inspections.

According to the announcement, the procedures are meant to decrease the incidences of tax fraud and other illegal tax reporting, and to close loopholes that may be exploited by exporters in obtaining export tax refunds. They took effect on September 1, 2010.

Exporters selected for a tax refund inspection will be given notice by the Tax Refund Authority and are required to perform a self inspection following a checklist outlined by the authority. The checklist must be completed and returned within one month, with some allowances made for unexpected delays, in which case the inspection checklist must be returned within three months.

Businesses may be selected for a tax refund inspection due to certain changes in their operations and accounting. Some of these changes would include logistical changes in shipping routes, suppliers and ports, while other modifications regarding pricing per unit of goods or volume of exports may also result in an inspection. The notice states that significant price increases of 10 percent per unit since the last price report, or an increase of 20 percent or more of the volume of monthly goods exported, would warrant an inspection issued by the Tax Refund Authority.

The notice highlights other new measures regarding tax refunds for exporters, including the stipulation that exporters may not claim more than RMB10 million from each supplier. Additionally, exporters should pay special attention to tax rebate claims when exporting to certain countries and territories in the region, including Hong Kong, Macau, Taiwan, and Southeast Asia, which may not warrant any claims to tax rebates due to low taxes and shipping costs.

In completing the checklist, any changes must be sufficiently justified by the exporting enterprise, and activity the Tax Refund Authority deems suspicious will require further investigation and auditing. Until the process is fully completed, a tax refund will not be issued. It is therefore vital that exporters provide a timely response to the Tax Refund Authority on both the checklist and further inquiries.

Exporting enterprises must be vigilant regarding changes in operations and costs, and should be prepared to defend any such changes to the Tax Refund Authority pending tax refunds.

For more information or advice on China’s tax regime, please contact Dezan Shira & Associates at